Oil Markets On Edge Despite Price Bounce – OIR 090819

While a promise from
Saudi Arabia to keep oil exports below 7 million bpd has given oil markets some
hope, overall sentiment appears to be very bearish.

Friday, August 9th, 2019

The main news today comes from the IEA, which called global oil demand
“fragile” amid signs of a slowing economy. “The situation is becoming even more
uncertain: the U.S.-China trade dispute remains unresolved and in September new
tariffs are due to be imposed,” the Paris-based agency said in its monthly
report. “The outlook is fragile with a greater likelihood of a downward
revision than an upward one.” While Saudi Arabia’s promise to keep oil exports
below 7 million bpd has given oil prices a boost, sentiment remains undeniably
bearish.

IEA cuts oil demand growth forecast again. The
IEA’s latest Oil Market Report shows some worrying numbers on oil demand.
Consumption declined in May by 160,000 bpd year-on-year. Between January and
May, demand was only up by 520,000 bpd, the weakest increase since 2008.
Overall, the agency cut global demand growth for 2019 to 1.1 mb/d. The data
offers further evidence of an economic slowdown.

OPEC eyes deeper cuts. Reports suggest that Saudi Arabia called other producers to explore deeper action
in response to sliding prices. The report alone helped spark a rebound in
prices. The Oil Kingdom also announced that it would keep oil exports below 7 million
bpd.

New Permian pipelines bring relief.Permian
oil producers could see not only expanded midstream capacity, but also lower fees as new pipelines bring
competition. As much as 1.6 mb/d of capacity is coming online in the next few
months, with another 900,000 bpd set to be operational before the end of the
year. The midstream bottleneck will quickly transform into a surplus. “There’s
no way another 2.5 million bpd are waiting to get sent to Corpus Christi
(Texas),” Sandy Fielden, an analyst at Morningstar, told Reuters. “Clearly,
there’s going to be too much capacity ... There will be buying up of barrels in
Midland like it’s going out of style.”

U.S.-Saudi cooperation on Gulf Security. U.S.
Secretary of Energy Rick Perry metwith Saudi oil minister Khalid al-Falih on Tuesday, where the two
pledged to cooperate on the security of oil flows.

Rystad: Oil outlook going from “gloomy to gloomier.” The
potential for economic recession combined with ongoing increases in supply growth
pose a rather gloomy recipe for oil prices heading into next year. Recent
developments have “sent cold shivers” through the oil team at Rystad Energy,
the consultancy said in a release.

UK sees GDP contraction.In the second
quarter, the UK’s economy shrank for the first time since 2012. Analysts are
also raising the odds of a no-deal Brexit later this year. “There is ... little
doubt that the economy is stalling, regardless of the volatility in the data,”
PwC senior economist Mike Jakeman said.

U.S. natural gas demand at record high, but prices fall. Demand
for natural gas in the U.S. continues to climb to record highs, but prices keep
falling. The reason is that production continues to climb. Spot prices at the
Henry Hub NG-W-HH-SNL benchmark in Louisiana were nearing a 20-year low,
according to Reuters. “All the bulls are gone,” Kyle Cooper, consultant at ION
Energy in Houston, told Reuters.

Argentina heads to polls.Argentina is
holding an August 11 vote in the presidential primary, and due to the lack of
reliable polling, the vote is viewed as a crucial barometer ahead of the
general election later this year. Analysts say the reelection of President
Mauricio Macri would provide certainty for the Vaca Muerta, where shale
drilling is on the rise. However, analysts say that the opposition ticket,
which includes former president Cristina Fernandez de Kirchner as the
vice-presidential candidate, would still support Vaca Muerta development,
although it would bring more uncertainty.

Nigerian oil struggling to find a home. According
to Reuters, Nigeria’s light sweet oil is having trouble finding buyers,
displaced by U.S. shale oil of similar quality. Rising U.S. exports have forced
Nigerian oil not only out of U.S. markets, but also increasingly overseas.
Reuters said that as many as forty cargoes of oil from Nigeria for August
lacked buyers as late as July 18.

Big investors starting to divest from Big Oil. Bloomberg reports on a growing trend of major investors starting to divest from oil
companies over climate concerns. “You cannot have the same conversation for 15
years with no results,” one investor told Bloomberg.

Occidental sells $13 billion in debt.Occidental
Petroleum (NYSE: OXY)sold $13 billion in debt to help finance its takeover of Anadarko
Petroleum. The result was successful, demonstrating there is still a strong
appetite for debt from some investors.

PDC Energy in talks to combine with SRC Energy. PDC
Energy (NASDAQ: PDCE) is in talks with SRC Energy (NYSEAMERICAN: SRCI) on
a merger. If it goes through, the companies would combine to create a larger
Colorado driller. The talks are also a sign of the pressure to consolidate as
the industry goes through a rough patch.

Hamm sees little value in public listing. Continental
Resources (NYSE: CLR) CEO Harold Hamm was asked about the
value of listing his company publicly. “In today’s market, we don’t see a lot
of value in it,” Hamm said. The company has lost $15 billion in market capitalization since late
last year.

Berkeley gas ban could spread to other cities.The
city of Berkeley, CA recently banned natural gas hookups for certain types of
new buildings, which could be the beginning of a broader trend. “Wow. Can you
imagine if every local municipality takes up this issue? It's death by a 1,000
cuts,” Catherine Reheis-Boyd, the president of the Western States Petroleum
Association said Wednesday. Some 50 other municipalities are weighing similar
measures, according to S&P Global Platts.

Texas approves flaring permit in closely-watched case. The
Texas Railroad Commission approved a closely-watched permit for flaring on Tuesday, siding with
drillers over the pipeline industry.

Aramco IPO could be back. Saudi Aramco is
expected to hold its first-ever investor call on Monday, and there is now speculation
that the company could move forward with a public offering as soon as next
year. Reuters reported that there is a rather large gap between the $2 trillion valuation
the company wants and the roughly $1.5 trillion that some bankers think the
company is worth.